HM Treasury and the Bank of England announced a joint scheme on 8 September 2022 to address what the government described as the extraordinary liquidity requirements faced by energy firms operating in UK wholesale gas and electricity markets. The Energy Markets Financing Scheme will provide short term financial support and is designed to be used as a last resort1.
The announcement was made as part of a wider package set out by Prime Minister Liz Truss. The government said the scheme "will enable stability to both energy and financial markets, and the economy, and reduce the eventual cost for businesses and consumers"1. No figure for the scheme's total value, and no detail of which firms would be eligible or on what terms, was given in the announcement1.
The same package introduced an Energy Price Guarantee, under which a typical UK household will pay up to an average £2,500 a year on its energy bill for the next two years from 1 October, saving the average household at least £1,000 a year based on current energy prices from October1. The government said this is automatic and applies to all households, and that it takes account of temporarily removing green levies worth around £150 from household bills1. The guarantee supersedes the existing energy price cap, which limits the price suppliers can charge customers for units of gas1. The government will pay energy suppliers the difference between the new lower price and what retailers would otherwise charge, and schemes previously funded by green levies will continue to be funded by government during the two year period1.
Support applies to all households in Great Britain, with the same level of support made available to households in Northern Ireland1. Households that do not pay direct for mains gas and electricity, such as those living in park homes or on heat networks, will receive support through a new fund1. The guarantee comes in addition to the previously announced £400 energy bills discount for all households1.
A separate six-month scheme will offer equivalent support to businesses and other non-domestic energy users, including charities and public sector organisations such as schools, with a review in three months' time to consider where support should be targeted1. The government said many businesses are reporting projected increases in energy costs of more than 500%1.
"The Energy Markets Financing Scheme will enable stability to both energy and financial markets, and the economy, and reduce the eventual cost for businesses and consumers"
| Measure | Detail as announced |
|---|---|
| Energy Price Guarantee | Typical household pays up to an average £2,500 a year for two years from 1 October |
| Saving | At least £1,000 a year for the average household, based on current prices from October |
| Green levies | Around £150 temporarily removed from household bills |
| Northern Ireland | Same level of support made available |
| Non-domestic users | Equivalent support for six months, with a review after three months |
| Energy Markets Financing Scheme | Short term financial support for energy firms, last resort |
Why it matters for households
The Energy Markets Financing Scheme itself does not pay money to households. It is aimed at firms that trade in the wholesale gas and electricity markets, where sharp price movements can require large amounts of cash or credit to be posted against positions. If firms in that chain fail, the practical effects reach homes through supplier failures, transfers of accounts and, in the worst case, disruption to supply. The government's stated aim is to reduce the eventual cost for businesses and consumers by preventing instability from spreading1.
For a household, the guarantee changes the unit price a supplier can charge rather than the amount of energy used, so the size of a bill still depends on consumption. The £2,500 figure is an average for a typical household, not a cap on what any individual home pays1. The removal of green levies from bills shifts the funding of those schemes to government for two years, which the government said keeps investment in home-grown renewable technologies going1. The guarantee sits alongside the existing energy price cap, which it supersedes, and the wider regulation and policy framework that the government said it intends to review1.
What happens next
The Energy Price Guarantee takes effect from 1 October 2022 and runs for two years1. The non-domestic scheme runs for six months, with a review after three months1. The government also said it would launch a new oil and gas licensing round as early as the following week, expected to lead to over 100 new licences, and lift the moratorium on UK shale gas production, which it said could get gas flowing in as soon as six months1. A new Energy Supply Taskforce, led by Madelaine McTernan, has begun negotiations with domestic and international suppliers on long-term contracts1. No start date, budget or eligibility criteria for the Energy Markets Financing Scheme have been reported1.